Key Takeaways
- Intel has recently suffered poor financial performance that has led to bearish investor sentiment toward the stock.
- An increasing number of competitors are taking market share away from Intel, increasing more pressure on the company.
- Intel is transforming its business model toward a B2B foundry model to provide products to companies and data centres.
- Intel has announced competing products to Nvidia's AI chips to remain competitive, but adoption is not yet clear.
Introduction
Intel (INTC) has been a household name for several years, powering some of our favourite electronics. But, as an investor, what can this stock offer us, and can it provide us with potentially profitable returns in the future? However, as many competitors surge ahead, you're likely left wondering: Why is Intel stock so cheap, and should I consider buying it?
This article delves into the factors contributing to Intel's current market valuation, evaluates its competition and financial health, and assesses the question of whether you should hold this stock in your investment portfolio.
Financial Analysis of Intel's Stock
Weak financial performance
To begin with, Intel is and has been facing significant challenges over the last few years, resulting in underperforming growth in the stock market. Based on the last five years, Intel's stock has tumbled by 62.4%, due to multiple quarterly revenue declines and a loss in market share across the chip sector. These indications certainly point toward why Intel stock is so cheap.
Financial Health
Intel's Q3 2024 results show a sharp decline in net income (-$16.64B) and gross margin (15.03%), reflecting operational challenges. EPS plummeted to -$3.88.
Valuation
Intel's P/E ratio is inconsistent due to negative earnings, while its P/B ratio (1.04) is below industry averages, indicating undervaluation. The dividend yield has slightly improved to 2.09%.
Growth Concerns
Revenue YoY growth is declining (-6.17%), and EPS YoY change (-5620.08%) highlights severe profitability issues.
Further to Intel's troubling financial woes, its financial results have consistently failed to meet Wall Street's expectations, further fueling bearish sentiment toward Intel's stock. For instance, Intel's Q1 2024 earnings missed revenue forecasts and offered weak guidance for Q2 2024, leading to a further decrease in its stock price.
Challenges from competition and technological delays
Intel has been facing stiff competition from its competitors, such as Nvidia (NVDA) and AMD (AMD), especially in the development of AI and data centre markets, leading Intel to struggle further to outpace and drive revenue from its competitors.
In addition, Intel has lagged significantly behind in adopting new manufacturing technologies, such as extreme ultraviolet lithography (EUV), that increase the production quality of its products throughout the manufacturing process. This has allowed Intel's competition to gain a further edge when producing more advanced chips.
Shift to foundry business and high operational costs
Intel's business model is transitioning over to a foundry business, this would imply Intel's desire to begin focusing more on B2B chip sales vs B2C. This pivot will consume a significant amount of resources that will take time to show any signs of profitability.
In only 2023, Intel has already suffered an operating loss of $7 billion from its foundry division, leading to more speculation around whether Intel's stock will see any significant shift in value, with the company saying it may not even break even until 2027.
Low valuation and cautious analyst outlook
Intel's current price-to-earnings (P/E) and price-to-sales (P/S) ratios are lower than expected, suggesting investors are more cautious toward Intel's stock. This also adds to the already poor performance Intel is suffering along with market uncertainties.
Financial analysts have expressed a general sign of concern around Intel's ability to shift its financials toward a more bullish value, the main reasons analysts are concerned are Intel's generally poor financial performance and the enduring pressure it must tackle from its competition, driving more reason toward why Intel stock is so cheap.
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The Future of Intel's Stock
Intel recently announced its new line of processors, which the company hopes could regain market share and reignite interest in its stock. Intel's next-generation Xeon 6 AI data centre chips are designed to take on more intensive processing workloads for AI infrastructure, ultimately attempting to compete within this new field.
Furthermore, Intel's innovative Gaudi 3 accelerator kit, which houses eight Xeon 6 chips, will sell for around $125,000, making it considerably cheaper than Nvidia’s comparable HGX server system. This pricing structure may grow Intel into this next-generation of chips race as a top future contender that may one day outpace Nvidia.
Aside from these latest developments, Intel has a long way to go before it can see substantial shifts in its stock price. Intel will need to reveal new and innovative products in order to regain investor sentiment and interest throughout 2025.
Should I Buy Intel Stock?
Although we can see significant financial roadblocks for Intel, this doesn't mean it's a bad investment. In the world of stock trading, which is a get-rich-slow game, Intel has shown signs of future growth, that will translate into the company's stock price, this means that short-term and long-term investors may want to be cautious but monitor Intel's progress regularly.
Investors should weigh the factors discussed throughout this article and monitor Intel's progress on its strategic goals, financials, and announcements when considering whether Intel is a good investment.
Conclusion
Like all stocks, we are unable to make accurate predictions, but there are key indicators we can follow that offer us a glimpse into whether a stock will perform profitably, with Intel we can safely assume this company is attempting to steer its future in the right direction, but will take several months, or years to see any fruitfulness from it.
Regardless of whether you're a long-term or short-term investor, Intel's stock is not showing any clear signs of growth. A 200-day Simple Moving Average (SMA_200) below $27.10 indicates a long-term downward trend which is a sign of caution.
Intel may not be the best stock to invest in at this point in time. However, you can explore other stocks to invest in 2025 while Intel reorganizes itself toward future profitability.
